Op-Ed: Refinery Fire Spotlights California’s Gas Supply Crunch and High Prices at the Pump

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By Dan Walters, CalMatters

Thankfully, last week’s explosion and fire at California’s second largest refinery, Chevron’s El Segundo plant, was not an environmental catastrophe. But it could have serious economic and political impact.

It occurred as Gov. Gavin Newsom and other Democratic figures were in the midst of a 180-degree political pirouette: a shift from denouncing makers of gasoline as price gouging polluters, to beseeching them to continue production.

California once had dozens of refineries, but today nine are still producing gasoline, diesel fuel and jet fuel for airlines and military warplanes. Two have announced plans to shut down within a few months.

Valero’s refinery and the Phillips 66 plant in Southern California together represent about 17% of the state’s refining capacity, according to the California Energy Commission. State legislators reportedly have offered Valero state subsidies to keep its Benicia refinery in operation, fearing closure would raise Californians’ already high gas prices.

Chevron’s damaged El Segundo plant, if closed, would double the loss in refinery capacity to more than a third of the state’s total, causing a supply crunch that would assuredly result in higher pump prices.

California’s 30-million-plus cars and light trucks average 340 billion miles of travel each year and burn 13 billion gallons of gas, all but a trickle of which comes from the nine refineries. There are no pipelines to bring in fuel from other states, and importing gasoline from Asia or the Middle East via tankers is fraught with uncertainty and high costs.

Newsom, backed by fellow Democrats in the Legislature, spent months excoriating refiners for high prices, even though the state’s very high fuel taxes create much of the gap between prices in California and those in other states. Newsom called a special session of the Legislature to pass legislation that he said would penalize profits deemed to be too high.

The official criticism seemed to meld with the state’s declared intention to phase out gasoline-fueled cars in favor of those powered by electricity, thus shutting down oil production and gasoline refineries. Newsom’s administration has said that by 2035 the sale of new gas-powered cars would be banned.

The evolution Newsom envisions, however, also requires the state to continue some refining until the last of the state’s gasoline-powered cars are permanently parked, raising questions about how the change would be managed.

The Phillips 66 and Valero announcements forced the issue. The state’s politicians realized that a rapid decline in refinery capacity could send gas prices soaring, thereby creating a political backlash. Newsom’s evident presidential ambitions would be hammered by a sharp price spike.

Accordingly, in the last days of the legislative session, Newsom and legislators backtracked, passing measures to boost petroleum production. More recently, Newsom signed legislation to make gas with 15% ethanol available, saying it would lower prices by up to 20 cents a gallon. Apparently, legislators also have been feeling out Valero about some state subsidies for its Benicia plant, but so far they’ve had no success.

Chevron, whose refineries in El Segundo and Richmond have about a third of the state’s refining capacity, moved its headquarters from California to Texas last year and has made no secret about its disdain for California’s anti-petroleum policies, while dropping hints that it may close one of its two plants.

The extent of fire damage at Chevron’s El Segundo refinery, and the effect on gasoline supply and prices, are still unclear. However, it’s a reminder of how tight California’s gas supply has become and how cataclysmic the closure of its refineries could be — economically and politically.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.